Disallowed expenses not applicable for 2012-13

The ITAT dismissed the revenue's appeal, confirming that the disallowance under Section 40(a)(ia) was not applicable for the assessment year 2012-13 due to the prospective nature of the amendment by the Finance Act, 2015.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of Tax Deducted at Source (TDS) on interest payments.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments:

Assessment Proceedings:

During the assessment year 2012-13, the assessee paid interest on deposits exceeding Rs. 10,000 to various depositors without deducting tax at source. The amounts were as follows:
- Interest paid to individual depositors: Rs. 580.74 Lacs
- Interest paid to Co-op Society depositors: Rs. 590.12 Lacs
- Accrued Interest on FDRs: Rs. 2541.79 Lacs
- Total: Rs. 3712.66 Lacs

The Assessing Officer (AO) disallowed these payments under Section 40(a)(ia) due to the failure to deduct TDS.

Appellate Proceedings:

The assessee argued that under Section 194A(3)(v), no TDS was required for interest paid by a cooperative society to its members, a provision applicable only from 01.06.2015 due to an amendment by the Finance Act, 2015. The AO rejected this argument, stating that the assessee, being a cooperative society engaged in banking, was obligated to deduct TDS on time/term deposits. The AO maintained that the amendment clarified the applicability of Section 194A(3)(v) to cooperative banks, resulting in a disallowance of Rs. 3712.66 Lacs under Section 40(a)(ia).

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] relied on the Madras High Court decision in Coimbatore District Central Cooperative Bank Ltd. vs. ITO and the rationale behind the amendment effective from 01.06.2015, directing the AO to delete the disallowance. The revenue then appealed to the ITAT.

ITAT Findings and Adjudication:

The ITAT reviewed the facts and statutory provisions, concluding that the assessee, registered under the Tamil Nadu Cooperative Societies Act, 1983, and licensed by the RBI for banking activities, was not required to deduct TDS on interest payments before the amendment effective from 01.06.2015. The ITAT upheld the CIT(A)'s decision based on the Madras High Court ruling, which stated that no distinction existed between a cooperative society engaged in banking and a cooperative bank under relevant laws. The amendment by the Finance Act, 2015, was prospective, applying only from 01.06.2015, thus exempting the assessee from TDS obligations for the relevant assessment year.

Conclusion:

The ITAT dismissed the revenue's appeal, confirming that the disallowance under Section 40(a)(ia) was not applicable for the assessment year 2012-13 due to the prospective nature of the amendment by the Finance Act, 2015. The order was pronounced on 06th July, 2022.

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